Justification for Electricity Rate Freeze Melting?

If the Trump administration repeals the Clean Power Plan, what justification is there for an electricity rate freeze in Virginia?

Is it time to reverse the rate freeze on electricity rates in Virginia? If President-elect Donald Trump revokes the Obama administration’s Clean Power Plan, Sen. Chap Peterson, D-Fairfax, author of SB 1095, thinks it would be.

Two years ago, no one knew what to make of the Clean Power Plan, an Environmental Protection Agency initiative that compelled electric utilities to reduce emissions of carbon-dioxide in the cause of fighting Global Warming. No one in the 2014 General Assembly session knew what the final regulations would look like or which of four broad regulatory options the Commonwealth of Virginia might adopt. If the plan required Dominion Virginia Power and Appalachian Power to close coal-fired power plants and replace generating capacity with gas, solar or nuclear, the utilities warned that rates could spike higher. On the other hand, the plan might not survive legal challenge.

At the time, it made sense to many legislators to freeze base electric rates until the dust settled. Since then, Trump has declared his skepticism of Global Warming, promised to roll back regulations hurting the coal industry, and nominated a new EPA chief who, as attorney general of Oklahoma, had filed suit to block the Clean Power Plan. However, it is not clear how quickly the plan, was implemented under a novel reading of the Clean Air Act after extensive administrative proceedings, could be repealed.

Peterson says it is time for a second look at the freeze. “You really can’t say, ‘Oh we have a federal government that’s trying to put coal out of business, so we need to give power plants a financial break.’ Sorry, that narrative doesn’t work anymore,” the Associated Press quotes him as saying.

Large industrial customers say the freeze could cost Dominion customers $2.4 billion in unnecessary payments by 2022, when the freeze expires, and Appalachian Power customers another $300 million. But Thomas Wohlfarth, a Dominion senior vice president, said those estimates are based on overly optimistic projections about the true cost of providing electricity.

Moreover, Wohlfarth said, Trump can’t just dispense with carbon regulations with the stroke of a pen. “We’re not of the opinion that carbon regulation is going to go away.”

Update: Well, well, this blog post had the shortest relevance of just about anything I’ve ever published on Bacon’s Rebellion. When I checked Richmond Sunlight a couple of hours ago, the bill was still alive. Now I have been informed that the bill died in the Senate Commerce and Labor Committee on a 12 to 2 vote.

Update: Peterson is vowing that “the fight isn’t over to stop excessive profits for regulated utilities.” In what may be the most quotable quote so far this session, he said: “If you use electricity in Virginia, you should want this bill. If you live in a teepee, you probably don’t care.”

Update: Yikes, the updates are flowing fast and furious. The rate freeze “has provided direct benefits to low-income seniors and military veterans through the expansion of Energy Share, and saved customers millions of dollars in costs while keeping Dominion’s rates well below the national average, which are lower now than before SB 1349 was passed,” said Dominion spokesman David Botkins.

“The broader issue of uncertainty around how EPA will regulate carbon is increasing, given the current Clean Power Plan may be replaced with an alternative that would then be subject to a new round of challenges,” Botkins said.

7 responses to “Justification for Electricity Rate Freeze Melting?”

I am not certain what the justification was for the rate freeze to begin with. Most of the coal plant closures were because they could not economically be retrofitted to meet the Mercury, Arsenic and Toxic Substances regs (MATS). Many studies of Virginia’s cost of compliance with the CPP showed that very little needed to be done.

In the 2016 IRP hearing, Dominion witnesses admitted that most of their plans would be implemented using RAC’s and Fuel Factor adjustments. No adjustment to base rates would be required.

Any need to deal with a carbon charge, if one materializes, would be most inexpensively dealt with through energy efficiency and renewables. Nuclear is way out of the running with its exorbitantly high costs. Lazard shows that even at today’s costs, solar plus storage is cheaper than new nuclear.

There are lots of ways of dealing with CPP type issues and they should all be given a fair hearing. I don’t think a big push for fossil fuels, natural gas or coal, will pass the economic test if it is fairly administered. But we have seen occasions in the past where facts were not allowed to interfere with policy.

I never understood why they needed a rate freeze to start with – because it always sounded more like a way for them to exceed their statutory rates and increase their profits because gas was cheaper than coal.

The older coal plants were on their way out all along… but newer ones and upgraded ones like the ones is Chesterfield and Clover were going to stay.

The gap between the realities of this issue and the politics is like the difference between Mount Everest and Death Valley!

I was at session the days this happened, when the term “rate freeze” was buzzing around – yeah, right, like Dominion needed a law to protect them from being forced to raise rates because of the Evil Obama Clean Power Plan. It was NOT a “rate freeze”, but a “base-rate freeze”. Within 9 months, Dominion was scott-free from owing us ratepayers our rebate due since fuel (nat gas) and demand was down. The legislators realized early on (2015?) they had been snookered.

Not sure the public ever got a straight answer on why SB1349 was needed. Gov McAuliffe said he supported SB1349 because Dominion management told him they absolutely had to have it. Presumably we need to look to Gov McAuliffe to say if Dominion still needs it. Gotta like Chap Peterson though, I like his spirit.

Whatever happens to SB1349, some judgments can be made about what this rate freeze was intended to accomplish. It has nothing whatsoever to do with the federal clean power requirements or Dominion’s compliance with the EPA regulations. It has everything to do with creating a barrier between the SCC and Dominion’s Virginia electric rates that the financial community in New York City and beyond would appreciate, if not love!

How do we know this? Have confidence! For example, we can say with confidence, the sun came up this morning, and it will rise tomorrow, too. For another example, we can say with confidence that a “rate freeze” which encompasses only the utility’s most-stable cost of service components and adds variable “riders” for those pesky variable expenses like fuel, fuel transportation, and energy market purchases, and for all the capital carrying costs for new construction — but does not include any offset for the increased productivity resulting from that new construction — is nothing less than a ratemaking conveyor belt to good times! That CPP-mandated construction, for example, would be covered by riders.

Why would the SCC agree to such a thing? It didn’t! The GA imposed this perverse formula and that’s what we’ve got now in effect defining what is a just and reasonable rate for Dominion electric customers. Now to be fair, Virginia’s utilities complained for years about the stifling overreach and unresponsiveness of the SCC’s own staff ratemaking formulation called, euphemistically, Annual Review. And we all know, once the lobbyists got the GA mobilized enough to correct that overreach, who can be surprised if the result wasn’t just as much of an overreach in the other direction! But just take a look at the formula the GA wrote sometime. It goes on and on, paragraph after paragraph, detail on top of detail.

Do you know what this replaced? A one-sentence law that said, simply, the rates of a public utility shall be just, reasonable, and not discriminatory. That truly left it up to the SCC to say how. That provision, contained in the Virginia Constitution of 1902, is preserved in Section 56-235 of the Virginia Code, but in one crucial respect it was undermined in the current (1971) Virginia Constitution because ratemaking authority was conferred by the 1971 Constitution exclusively on the SCC — subject to “such criteria and other requirements” as may be specified by the GA. Is freezing rates not just a “requirement” but a denial of jurisdiction? At least one member of the SCC thinks it is, and therefore unconstitutional. See https://www.baconsrebellion.com/damnedest-thing-just-happened/ (2015).

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